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TMI Blog2024 (8) TMI 423X X X X Extracts X X X X X X X X Extracts X X X X ..... t period between 60 days and 240 days to the non-AEs, and basing on this the learned DRP in the assessment year 2018-19 took a view that the credit period as agreed between the parties shall be respected and followed and such a finding of the learned DRP has become final without the Revenue challenging the same, the credit period which is extended to the non-AEs by the assessee shall be extended to the AEs also. On this reasoning we do not find any illegality or irregularity in the findings returned by the CIT(A) that the interest shall be record beyond the credit period as agreed between the parties. Ends of justice would be met by accepting the interest rate on similar foreign currency receivables/advances as LIBOR+200 points. We direct AO / TPO to adopt the same. Grounds are partly allowed accordingly. Weighted Deduction u/s 35(2AB) - weighted deduction claimed in respect of the expenditure incurred on the expenditure not quantified in the expenditure approved by the DSIR reflected in part B of form 3CL, and on clinical trials - HELD THAT:- Both the authorities held that for claiming weighted deduction, such an expenditure must have been approved by the prescribed authority and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t order. Assessee reported no objection for passing the final order pursuant to which the final assessment order was passed, which was challenged before the learned CIT(A). Learned CIT(A), by way of impugned order disposed of the appeal giving part relief on all the three counts, in respect of which both the assessee and Revenue preferred these appeals. 3. Insofar as these two appeals are concerned, all these three issues are involved. Those are additions made in respect of the Corporate Guarantee commission, interest on receivables and disallowance of weighted deduction claimed under section 35(2AB) of the Income Tax Act, 1961 ( the Act ). We shall now proceed to answer these three issues in the light of the submissions made on either side and available material on record. 4. Coming to the issue relating to the corporate guarantee, contention of assessee before the learned TPO was that the corporate guarantees not an international transaction and it does not require any benchmarking at all on the ground that it is the responsibility of the parent company to provide guarantee to its subsidiary companies, and, therefore, it is to be categorised as shareholders activity. 5. Learned T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lternative, pleaded that corporate guarantee at 0.53% determined by the learned CIT(A) is too high and cannot be sustained. Basing on the view taken by the Co-ordinate Benches of this Tribunal in the cases of Aster Private Limited Vs. DCIT in ITA No. 220/Hyd/2015 and DCIT Vs. Lanco Infratech Limited, 81 taxmann.com 381 (Hyderabad Tribunal) he prayed that the ALP in respect of Corporate Guarantee fee may be determined at 0.25%. He further submitted that the guarantee fees charged by SEBI from the assessee in respect of guarantee extended on its behalf was only 0.20%. On this aspect, the learned DR submitted that the ALP at 0.20% and also 0.53%, as determined by the learned CIT(A) is absurdly low. In the alternative he submitted that following the view taken by the Hon ble Bombay High Court in the case of Glenmark Pharmaceuticals Ltd. Vs. Addl. CIT [2014] 43 taxmann.com 191 (Mumbai - Trib.) may be followed. 9. In view of the decision of the Hon ble Madras High Court in the case of Redington (India) Ltd. (supra), we have no second thought, and this decision is applicable to the facts of the case. No further debate by the Tribunal is permissible, when the higher forum decided the issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunals in the above cited cases and also in the case of Vivimed Labs (supra), we partly allow the ground of the assessee and restrict the addition to the tune of 0.5% on the amount guaranteed as corporate guarantee commission. 12. Following the above decision of the coordinate Bench, we direct the learned Assessing Officer/learned TPO to adopt the same at 0.50% on the guaranteed amount. Relevant grounds are answered accordingly. 13. Next issue is in respect of the interest on receivables. Again, on this issue also, the assessee had taken a plea before the learned TPO that it is not covered under the definition of international transaction and it does not require any separate benchmark. Learned Assessing Officer also again relied upon a number of decisions on this aspect and held that the trade receivables are separate international transaction requiring separate benchmarking and while following the view taken by the Tribunal in the case of M/s. Logix Microsystems Ltd. Vs. ACIT in I.T.A No.423/Bang/2009, dated 07/10/2010, learned TPO thought it proper to consider the SBI short term deposit rate as appropriate CUP to determine the ALP of the interest on outstanding receivables. 14. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f goods or services rendered in the course of carrying on the business, it is liable to be visited with the transfer pricing adjustment on account of interest income short charged/uncharged. Basing on the view taken in a number of decisions of the Tribunal of various Benches, authorities held that it is incumbent upon the taxpayer to separately benchmark the arm s length price of the international transaction relating to interest on overdue receivables from the AE by way of analysis of functions, assets and risks. 18. Learned DR further argued that the credit period as per the invoice with the AE cannot be contemplated as a comparable in TP regime as it is a controlled transaction and lacks arm s length characteristic as held by the ITAT in the case of M/s. Technimont ICB P. Ltd., vs. Addl. CIT 138 ITD 23 (Mum); whereas apart from placing reliance on the view taken by the learned DRP for the assessment year 2018-19 which became final, the learned AR also placed reliance on a decision of the Mumbai Bench of the Tribunal in the case of DCIT vs. Indo American jewellery Ltd in ITA No. 5872/mum/2009 for the principle that if an entity is engaged in commercial transactions with the group ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l in the case of DCIT vs. Indo American Jewellery Ltd in ITA No. 5872/mum/2009 it was held that if an entity is engaged in commercial transactions with the group entity as well as third-party unrelated customers, and if the entity is giving credit facility ranging up to 352 days to both group entity as well as the third-party unrelated customers, in such case, no addition on account of interest adjustment can be made. 21. Though the learned DR opposed the prayer of the assessee on this aspect, he could not contradict the fact that in assessee s own case for the assessment year 2018-19 the learned DRP took a view that the credit period should be considered as per the agreement between the parties as reflected in the invoices and directed the learned TPO to verify credit period as per invoice and to charge the interest for the period beyond such credit period agreed in the invoices. 22. Apart from this learned AR submitted that the assessee extends credit period ranging between 60 days and 240 days for realisation of sale proceeds from the non-AEs depending on many factors including terms of payment in respect of a commercial transaction and the normal business practice and submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... called amount receivable from AE, by applying LIBOR interest rate for the purpose of computation of transfer pricing adjustment, if any. This view is affirmed by the Hon'ble Bombay High Court in PCIT vs. Tecnimont (P.) Ltd. [2018] 96 taxmann.com 223 (Bombay) observing that in cases where any business enterprise is required to pay interest on delayed payment, it would examine the cost of interest and if the same is higher than the amount of interest payable on funds obtained locally, it would take a loan from local sources and pay the amounts payable for exports and expenses within time. Therefore, extending of credit beyond the normal period of sixty days is in substance a granting of loan to an AE so as to enjoy the funds, which the AE would otherwise have to repay within the period of sixty days. On this premise the Hon'ble High Court upheld the view of the Tribunal in computing the interest at LIBOR rates as the rate prevailing in country where the loan is received/consumed by the AE by observing that the same cannot be faulted. 26. In the case of CIT Vs. Cotton Naturals (I) (P.) Ltd. [2015] 55 taxmann.com 523 (Delhi) the Hon'ble Delhi High Court considered the ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es/advances as LIBOR+200 points. We direct the learned Assessing Officer / learned TPO to adopt the same. Grounds are partly allowed accordingly. 29. Next and last issue relates to the weighted deduction claimed by the assessee in respect of the expenditure incurred on the expenditure not quantified in the expenditure approved by the DSIR reflected in part B of form 3CL, and on clinical trials. There is no dispute that the expenditure that is not quantified in the approval by the DSIR, such an expenditure was incurred towards rates and taxes, travelling expenses of research units. Both the authorities held that for claiming weighted deduction, such an expenditure must have been approved by the prescribed authority and that no exceptions to this rule are provided in the Act. Though such an expenditure was incurred in relation to the scientific research and development, the requirement of approval by the prescribed authority is not fulfilled in this case and therefore, it is not qualified for weighted deduction, but at the same time since there is no dispute as to the incurring of such expenditure by the assessee, the said expenditure is qualified for hundred percent deduction. To th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jarat High Court rendered the decision in Cadila Healthcare Ltd (supra) holding that the clinical trials are not always possible to be conducted in the closed laboratory or in house like facilities and are required to be conducted outside the approved facility and if we go by the restricted interpretation resorted to by the Revenue, such an interpretation renders the explanation meaningless where the expenses for obtaining approvals from the regulatory authorities are also included in the clinical trials, because such expenses for obtaining approvals from the regulatory authorities normally happen outside the approved R D facility. Subsequent to the SLP preferred by the Department and three issues were remanded for consideration by the Hon ble Gujarat High Court by order dated 13/10/2015, the Hon ble Gujarat High Court, by order dated 25/2/2020 in PCIT vs. M/s Sun pharmaceuticals industries Ltd in R/Tax Appeal No. 92 of 2020, observed that in view of the decision in Cadila healthcare Ltd (supra) the issue relating to the allowability of weighted deduction under section 35(2AB) of the Act in respect of clinical trials expenses incurred outside the approved facility stood covered and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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